Correlation Between Cathay Taiwan and Cathay SP
Can any of the company-specific risk be diversified away by investing in both Cathay Taiwan and Cathay SP at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Cathay Taiwan and Cathay SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cathay Taiwan 5G and Cathay SP North, you can compare the effects of market volatilities on Cathay Taiwan and Cathay SP and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Cathay Taiwan with a short position of Cathay SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Taiwan and Cathay SP.
Diversification Opportunities for Cathay Taiwan and Cathay SP
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cathay and Cathay is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Taiwan 5G and Cathay SP North in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay SP North and Cathay Taiwan is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Cathay Taiwan 5G are associated (or correlated) with Cathay SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay SP North has no effect on the direction of Cathay Taiwan i.e., Cathay Taiwan and Cathay SP go up and down completely randomly.
Pair Corralation between Cathay Taiwan and Cathay SP
Assuming the 90 days trading horizon Cathay Taiwan 5G is expected to under-perform the Cathay SP. But the etf apears to be less risky and, when comparing its historical volatility, Cathay Taiwan 5G is 1.26 times less risky than Cathay SP. The etf trades about -0.16 of its potential returns per unit of risk. The Cathay SP North is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 4,860 in Cathay SP North on August 28, 2024 and sell it today you would earn a total of 195.00 from holding Cathay SP North or generate 4.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 90.48% |
| Values | Daily Returns |
Cathay Taiwan 5G vs. Cathay SP North
Performance |
| Timeline |
| Cathay Taiwan 5G |
| Cathay SP North |
Cathay Taiwan and Cathay SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Taiwan and Cathay SP
The main advantage of trading using opposite Cathay Taiwan and Cathay SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Taiwan position performs unexpectedly, Cathay SP can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Cathay SP will offset losses from the drop in Cathay SP's long position.The idea behind Cathay Taiwan 5G and Cathay SP North pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
Other Complementary Tools
| Financial Widgets Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets | |
| Equity Valuation Check real value of public entities based on technical and fundamental data | |
| Technical Analysis Check basic technical indicators and analysis based on most latest market data | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume | |
| Equity Forecasting Use basic forecasting models to generate price predictions and determine price momentum |